Ebooks cost a lot of money to make; will no one explain why that has to be so?

Paul Raven @ 02-10-2009

Andrew Wheeler wants people to stop saying that ebooks don’t cost publishers lots of money to make:

Creating an individual ebook format — one of the current suite of them — costs roughly as much as creating a print-on-paper edition; the costs of the actual paper and ink are vanishingly small in this equation. Some ebook formats, such as the currently fashionable one, have a baroque process of creation that involves multiple transformations and iterations of quality control, which drives up costs further. And the cost per unit is massively higher for ebooks than for printed books — infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, I feel the need to respond to this post, because I’ve chimed in on ebook economics before and it’s a topic I care a lot about. However, I’m going to first point out that I have a great deal of respect for Andrew Wheeler, both as a blogger and an editor, and I’m fully aware that he knows a lot more about the inner workings of the publishing industry than I do; I’m not going to tell him he’s wrong, because he isn’t. I’m not going to refute the claim that ebooks currently cost a lot of money to make. I am, however, going to say that they shouldn’t cost a lot of money to make, that they don’t have to, and that the longer they do, the smaller the chances of them ever becoming a viable industry in their own right.

Part of this isn’t the fault of the publishers; as Wheeler points out, there are a dozen competing ebook formats with arcane creation processes; there are DRM frameworks; there are ebook vendor requirements that predicatably take advantage of the over-the-barrel status of the publisher and milk them for as much as they think they can get away with. This is pretty much how new technologies always work; I can see parallels with the digital music business as it meared the Napster era. The publishers dragged their feet then, as well, and in the process allowed an openly accessible file format (the mp3) to gain ascendancy in a series of distribution networks that they had no investment in or control over. I expect book publishers are well aware of this parallel; what surprises me is that they’re not talking to the consumers about it more actively.

I do need to quibble on one of Wheeler’s points:

… the cost per unit is massively higher for ebooks than for printed books — infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, again, I’m not saying he’s wrong here – he’s seen figures and spreadsheets that I’ll never be shown, of that I’m certain. But if you’re running a set-up where the per-unit cost of an infinite good is higher than that of the physical finite version, either there’s something massively wrong somewhere in the production chain, or my understanding of the publishing process has a huge flaw which I would sorely appreciate being corrected on.

Allow me to explain: some of you may be aware that I work for UK small press PS Publishing. Now, we don’t sell ebooks (yet), but we make PDF versions of our books available to reviewers. Those PDFs are almost identical to the file we send to the printers, except for being saved at a lower resolution to save on disk space and download times. In other words, the work to produce a template for the reproduction of a physical book or an electronic one can be exactly the same; the same editing, proofing and typesetting/layout process, all the way up to the stage where the book is released to duplication.

The obvious answer to that statement is “well, you’re using PDFs and no other formats, so of course it’s easy”. Well, yes; and that’s kinda my point – if the publishing industry continues to allow intermediary vendors to shaft them with ludicrous hoop-jump requirments and costs for multiple proprietary formats, then they’re never going to make a dime out of selling ebooks. There needs to be a concerted push by the industry for a single, simple and secure digital format that everyone uses; then leverage can be applied to the makers of reader hardware to support that format, plus the formats used by public domain material (e.g. the humble and ubiquitous PDF, which is either unsupported or charged for on most current readers of which I am aware).

Part of the establishment of that file format should include software for easy conversion of proofed electronic galley files directly into it, so that once a book is ready for printing, it’s also ready for ebooking in one click. At this point, there’s no way the per-unit cost for ebooks can be higher than print, because that ebook is ready to ship, and any intermediary vendors should be willing to eat the storage and distribution costs out of their final to-consumer price. If they’re not, you go with the one who will; the rest will soon follow. Now, sure, you’ve still got your marketing and promotion budget to consider in to that per-unit cost, but that’s the same outlay for both editions up to this point in the process, and with a digital format that cost is spread over a theoretically infinite number of units at no extra cost.

By comparison, after that final file is deemed ready for production, printed books must be printed, warehoused, shipped, lifted onto shelves in brick-and-mortar stores and run past the till scanners there, too… and all that money has to be coming from the profit margins. By any rational analysis from outside (with the caveat that I’m not an economist or an accountant), that must cost more than making digital books available; I’m prepared to believe that there may be reasons that it doesn’t, but I’d suggest that those mysterious reasons point to a heroic flaw in the economics of book publishing as it stands.

To reiterate: I’m not saying Andrew Wheeler is wrong to say that ebooks cost more to make than dead-tree books; I’m saying that disparity in cost is impossible to understand for anyone not privy to the way the system works – people like me, and people like the ones who want to buy ebooks but find them either unavailable due to antiquated regional licencsing, hobbled or useless thanks to proprietary and restrictive file formats, or just simply too damned expensive by comparison to the dead-tree version.

Wheeler’s final point s that many ebooks never sell a single copy, which surely only underlines my point that making every effort to reduce that inexplicably high per-unit cost is the only way to make them a viable business. As Blue Tyson says in the comments below the post, “[p]ricing them double is a pretty good strategy to sell zero, certainly.” If your current system means you have no choice but to charge an arm and a leg for an infinte good, your system is surely broken. I think part of the problem is considering the physical and electronic versions as two separate products; that proofed and typeset file is the product, and the ebook or bound paper are just the delivery systems for it.

Now, I’m fully prepared to admit that there are things I don’t know about how the system works, as mentioned above. The point I’m trying to make here is that until the consumer has been shown why that price must be so high, they will never stop complaining about it. I’d genuinely like to know the truth of the matter, and as such I’d like to invite Andrew Wheeler (and anyone else with the pertinent experience and knowledge) to set us straight; I’ll happily publish a response here, or link to it if published elsewhere. Sunlight is the best disinfectant, so they say. :)

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19 Responses to “Ebooks cost a lot of money to make; will no one explain why that has to be so?”

  1. Ian Sales says:

    I also saw that post and wondered how the unit cost for an ebook could be more than that of a printed paper book.

    Ebook and printed paper are formats, just like paperback and hardback. So any costs associated with preparation and promotion of the product are not specific to the format. Books are edited, typset, designed, etc., irrespective of format. Likewise, the format is irrelevant to the promotional costs (promotions for new editions, notwithstanding). This is common sense.

    So it’s only really fair to compare the production costs. And I don’t see how an ebook can be more expensive in that case. If you have camera-ready copy, how can it be more expensive to save it as a file & host a single copy on a server… compared to producing plates, running off a few thousand copies on paper, binding them, storing them in a warehouse and then shipping them to distributors and retailers?

  2. Charles Tan says:

    Hi Paul!

    I originally posted this at Wheeler’s comments but here are some articles that break down why eBooks are expensive:

    http://www.spontaneousderivation.com/2009/10/01/a-brief-drunken-comment-on-the-cost-of-making-ebooks/

    http://www.sfx.co.uk/page/sfx?entry=blog_the_price_of_ebooks

    http://www.bookbusinessmag.com/article/amazons-kindle-has-raised-issues-book-publishers-such-appropriate-pricing-options-e-books-407856.html

    (And my thoughts, although I’m no expert) http://charles-tan.blogspot.com/2009/07/essay-difficulty-of-pricing-ebooks-part.html

    The gist:

    Selling dead-tree books involves the publisher-distributor-retailer model (let’s say it’s a 40/30/30 split on the retail price). Printing books will only account for 10-20% of the publisher’s expenses. eBooks still work on the 40/30/30 model or some variant (more like a 50/50 split between the publisher and the retailer [Amazon’s Kindle Store/Sony’s eReader store]). Theoretically, publishers can profit from this if there was no retailer (i.e. readers bought it directly from the publisher) but in the case of most mainstream publisher’s that’s not the case.

    In an eBook-only environment (which isn’t the case in reality since a lot of titles are released in both print and eBooks but bear w/ me to simplify the equation), the price of the eBook should be based on how many books the publisher expects to sell. In print, that’s what usually determines whether a mass-market paperback will get a print run of 10,000 vs. 100,000 and from there, the author’s advances. Problem with the “infinite potential” of eBooks is publishers don’t know whether they should be paying the author advances based on 10,000 or 100,000–unless the author is willing to be paid solely on royalties. Publicists, editing, book design have a fixed costs, but again they need to sell a minimum amount of books to cover this fixed overhead.

  3. Charles Tan says:

    So any costs associated with preparation and promotion of the product are not specific to the format.

    Yes, it’s not specific to the format. But just because that’s the case does not mean it should not shoulder any of those costs. Right now, eBooks are subsidized by print books. What if print books didn’t exist (i.e. it’s an exclusive eBook release). Then the eBook will shoulder all of these costs, and you’ll see that the final price isn’t as low as you’d think it would be.

    If you have camera-ready copy, how can it be more expensive to save it as a file & host a single copy on a server… compared to producing plates, running off a few thousand copies on paper, binding them, storing them in a warehouse and then shipping them to distributors and retailers?

    That’s assuming the eBook can be derived from a camera-ready copy (i.e.PDF). The other formats needs some layout/editing done and not as simple as copy/paste.

    Printing production only comprises a small amount of the final retail price. Theoretically, 60% of the SRP goes to the retailer/supplier. Printing should cost the publisher anywhere from 10-20% (admittedly blind estimate on my part). Storage/shipment should be shouldered by the distributor. It would be cheaper if the publisher cuts the middleman but most publishers don’t: money that would have gone to a traditional distributor/retailer goes instead to the online retailer (i.e. Amazon).

  4. Charles Tan says:

    Sorry to spam the blog!

    Here’s another old blog entry of mine which explains how selling eBooks can be viable:

    http://charles-tan.blogspot.com/2009/08/essay-difficulty-of-pricing-ebooks-part.html

  5. Paul Raven says:

    Hi Charles – no need to apologise, it’s not spamming if the links are pertinent! And these certainly seem to be on point; as I hope I made clear, my intent here is to learn and understand the issues, and your points shed some much-needed light on some of the aspects I’m talking about. That said, it still seems to me that the problem is one bound up with the publishing business model rather than the actual economics of infinite goods, and that’s the distinction that I really want to get to grips with and understand. Really hoping that lots of voices will chip in and get the discussion rolling! :)

  6. Charles Tan says:

    Hi Paul.

    Errr, yes, I do agree it’s the business model that’s the problem rather than the economics of infinite goods. There are exemptions and instances when eBooks can be profitable. Most of the time however, it’s a bad fit for MAJOR publishers. I easily see one-person outfits, under the right circumstances, churning out a profit selling eBooks for example.

    PS Publishing is both in the best and worst positions to adopt eBook selling for me. Best because I expect majority of its sales is direct instead of coursing it through distributor/retailer channels (which isn’t to say that they don’t do that, but I presume–and I could be wrong here–that majority of their sales are from the website). Worst because PS Publishing titles are marketed as limited editions, providing value for money, so eBooks which honestly have little collector value, isn’t an appropriate commodity.

  7. Ian Sales says:

    What if print books didn’t exist (i.e. it’s an exclusive eBook release). Then the eBook will shoulder all of these costs, and you’ll see that the final price isn’t as low as you’d think it would be.

    But then it’s not the fact that it’s an ebook, as opposed to a print book, that makes it “more expensive”. When comparing costs, surely you can only compare specifically format-related costs?

    If – for the sake of discussion – it costs £10 to reformat a manuscript for an ebook release, £100/yr to host it, and £0 to distribute it… how can that be more expensive than a print book which costs £10 to typeset, £5 for plates and 20p per copy for a print-run of 1000 (a total of £215)?

    Basing the price of the ebook on expected sales completely sidesteps the concept of costs. Especially since the marginal cost of ebooks is zero, while the same is not true for print books.

  8. Charles Tan says:

    I. Whether it’s a print book or an eBook, you need to pay (assuming you’re a major publisher):

    a) author
    b) editor(s)
    c) layout artist (might be subsumed into the reformatting costs)
    d) marketing/publicity/public relations
    e) miscellaneous staff (accountant, secretary, etc.)
    f) the publisher

    a) is presumably the only variable that is not a fixed costs; the rest will demand a flat fee (unless they can be negotiated to work on royalties). So far, cost to produce an eBook = cost to produce a print book.

    II. What are the arguments against eBooks?

    a) don’t need to print it (much of the costs you listed from typesetting to print run)

    b) don’t need to distribute/transport it

    a) is true; you don’t need to print it BUT that’s only a negligible deduction in the retail price (as I said, anywhere from 10-20%). Quantity matters, however, because of the costs in I. Whether your eBook sells 1 copy or 1,000,000, you need to pay a) – f). The only one who has progressive payment there (i.e. based on your actual sales) is a) unless the rest agree to get paid based on royalties (good luck convincing an entire staff of that). So while you might think it doesn’t cost the publisher to print a lot of eBooks, they still need to sell a minimum amount of eBooks at a certain price point. eBooks start becoming advantageous when they sell enough to cover the fixed costs.

    Let’s say it’s costing you $10,000 (an arbitrary number) to pay your entire staff. If it was a mass market book, you expect you need to sell 80% of a 3,125 print-run book selling at $10.00 each (let’s assume the publisher keeps $4.00). The thing here is, the SRP is sest at $10.00 because the publisher estimates that he can sell at least 2,500 copies to break even. If it were an eBook, if you can’t sell at least 2,500 copies, the SRP increases (basic supply vs. demand).

    However, bear in mind that when you sell an eBook at the same price as a print book, people start complaining and expect it to be cheaper. In this case, the book can afford to be $1 – $2 cheaper since there’s no printing costs involved. So $8.00 for the same book, expecting to sell at least 2,500 copies.

    But what if (and is probably the current state right now), eBook sales does not equal print sales? (I won’t even go into the that eBook sales cannibalize print sales.) If eBook sales are less than print sales, the only way to recuperate that $10,000 expenses is to increase the price (since you can’t increase the quantity sold). So it becomes more expensive.

    b) isn’t true because you instead spend that money on online retailers (unless, of course, you’re selling direct, in which case it’s a feasible business model) such as Amazon. They’re not getting retailer percentage on eBooks, they’re getting retailer AND distributor percentages on eBooks.

    The statement “the marginal cost of ebooks is zero” is only true (and that’s not counting the hosting/bandwidth services) if you’re doing everything from writing the book, editing it, promoting it, and selling it yourself, and you’re willing not to get paid upfront.

    Also in the event that you do become your own retailer/distributor, you need to spend on building that infrastructure. It’s not just the hardware you have to invest in, but the software as well (the poor man’s version is to have a paypal button on your website and email each individual who pays you via paypal but that’s kinda inefficient and only works for small quantities).

  9. Nick says:

    I’d also like to point out that much of the cost of making eBooks is only a temporary issue and a result of the massive inertia in the large-scale publishing industry.

    Holding a book as XML, it can become a relatively straight-forward and even automated task using XSLT and XSL-FO to create whatever editions you need. This would then become a print-on-demand eBook model.

    The big problem with getting to XML for the industry is the source: Authors tend not see their books as data to be manipulated and even getting the manuscript in as an electronic format can be difficult. :)

  10. Dave says:

    Yes, agreed, that ebooks are so expensive to make is a failure of the industry rather than an excuse for their high prices and low adoption. The problem is it’s tough for an entrepreneur to come in and kick everyone’s ass with efficient methods, because most of the market is copyright-protected.

  11. Ian Sales says:

    For “entrepreneur” read “pirate”?

  12. Ian Sales says:

    Charles, you’re ignoring the point. Publishing any book irrespective of format is expensive. But the format-only cost of an ebook is cheaper than that of a paperback. It has to be. There’s only copy of it, for a start. Every other cost is irrelevant to the argument because you’d pay them if you were publishing a paperback or a hardback.

    I’ve yet to be convinced ebooks are as expensive as hardcopy formats because every claim I’ve seen that they are includes all the costs associated with publication prior to the decision on which format to use.

    Incidentally, hosting and bandwidth costs are fixed costs – they’re part of the infrastructure. You can factor them in, but they’ll still be there irrespective of what format you choose. (Let’s face it: no business today can afford not to have an Internet connection.)

  13. Charles Tan says:

    Ian: I’m cutting the argument short but sure, if you want to look at eBooks in isolation, yeah, it’s cheaper than, say, printing 10,000 copies of a MMPB. But like everything, what we’re arguing is the context it’s placed in (how many actual copies do eBooks sell at this point in time? fees for retailers?). I already wrote about this in the links above (but for and against eBooks), I don’t want to repeat myself.

  14. Heather says:

    I call BULLCRAP on ebooks costing the same as a dead-tree book. For the dead-tree you have to hire someone to print the books, you have to pay for ink (and someone is going to say ink isnt expensive? Anyone here ever buy ink for a computer??), you have to pay for the use of equipment to PRINT said books (as well as have money set aside for repairs). I am looking on Amazon.com and the eBooks are more expensive then the dead-tree versions. Only reason? Because people will pay. Same with anything else. I refuse to pay MORE for something costing THEM less. Its the same with ATM’s. They end up costing you when you go to one NOT connected to your bank except there IS NO DAMN COST to the bank. This country is full of thieves. God Bless Capitalism… makes thievery legal. If they will pay it… by God we will charge it. Even if we give some good BS to make it sound good.

  15. Heather says:

    People also left out the cost of space and storage that dead-tree books take up. Computerized books take up ZERO space. Another cost factor. Sorry… no way a eBook should cost more. And eBooks would become more popular if they were significantly cheaper. But when you can get a small few you can gouge vs. many with low prices… people like to see higher prices. Its like the idiots I work for in the hotel business. They would rather see ONE room go for $89 then 5 rooms at $65. They would rather a 25% full hotel at $89 then 75% full hotel at $65.
    There is no way to convince me looking at all the cost facotors (storage for books, transportation for books, equipment to print books, ink to prink books, someone to oversee printing of books, etc etc etc) that eBooks remotely should be running the same cost as a hard copy/paperback.

  16. Jan says:

    Is it legal to put books of deceased people on-line as a complete book . I have noticed that some of my late-father-in-law and his sister’s books are on the WWW and feel this should not be allowed without permission of living relatives. The books are out of print not available in Uk libraries Please would someone verify the law about this. Who would benefit finacially? Are people making money out this without family living permission.

  17. Paul Raven says:

    Sounds like you need to speak to an IP lawyer rather than a science fiction blogger, Jan. :)

  18. R Davis says:

    Every discussion I have seen on this topic totally ignores an important factor. I buy a TON of older books in second hand stores and yard sales, and alomst never buy books in a bookstore, but would be interested in having them on a reader, and so revenue that was formerly going elsewhere would be going to the people who actually produced the books. Keep charging new book prices for books I bought a decade ago for a quarter? No way. 1/2 price & I’d consider it to get books on a reader. & many of the ‘benefits’ of the reader don’t apply to folks like me…saving trees…nope, somebody else already bought the book…convenience? Sure, if I’m not on a boat, at the beach, camping, or by the pool. I know a lot of people who buy books as I do. So do ya want our money, or should we keep giving it to others?

  19. Adam says:

    The only problem that I see is that the people who charge to create content and then subsequently aggregate e-books into stores like Amazon, iBook store, and Barnes & Noble are charging a lot of fees and a percentage of profits. Realistically, if an author wants to get his or her book into any store, other than the iBook store, he or she simply has to type the book in MS Word and then copy/paste it into a WYSIWIG HTML editor, then format it. The formats are not that stringent, and HTML is the format that works best with every ebook type, all the files start out as .html webpage files and then are turned into their respective file types to satisfy the DRM requirements of ebook readers.

    If someone wanted to dramatically impact this industry, they would create an open source WYSIWIG editor whose interface (page breaks, indents, font formats) automatically inserted the few specialty HTML tags necessary to create the perfectly formatted ebook in each DRM format. That step would go pretty far to cut the middle man out of the e-book creation process. No more Smashwords. No more Createspace. No need for XLibris.

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